Bitcoin rose 4 percent on Wednesday as upbeat Chinese manufacturing data eased concerns about global growth and improved risk appetite in global financial markets.
pairBTC price 4-hour chart | Source: Tradingview
China’s official manufacturing purchasing managers’ index rose to 52.6 in February at the fastest pace in more than a decade, following January’s 50.1, according to data released on Wednesday. A reading above 50 indicates expanded activity. The non-manufacturing PMI rose to 56.3 from 54.4 in January.
Positive news from China – known as the world’s factory and the largest trading partner of the US and Germany – pushed the dollar lower against major currencies and pushed risky assets such as bitcoin and stocks higher.
The largest cryptocurrency by market capitalization rose 4 percent from $23,000 to nearly $24,000 before edging lower to $23,700, the data showed. The dollar index , which tracks the greenback’s value against major currencies, was down 0.5% at 104.36.
Hong Kong’s Hang Seng rose 4.15%, leading the risk-on recovery in Asian indexes. Major European stock indexes and futures linked to Wall Street’s tech-heavy Nasdaq index also edged higher. Bitcoin has a positive correlation with Nasdaq and the overall stock market.
The leading cryptocurrency’s early rally on Wednesday is in line with recent market strength driven by outflows from Asia.
“We noticed that since BTC bottomed out in November, the price has followed a steady and healthy uptrend during Asian hours, with no notable down days. Profits have been more erratic during US hours, with January’s surge occurring during US trading hours , while last week’s rally happened during the European session,” K33 Research analyst Vetle Lunde said in a note on Feb. 8.
Recently, the People’s Bank of China has injected liquidity to offset the Fed’s tightening and control of risky asset prices. Therefore, the future of the cryptocurrency market now depends on what happens in the east.
“Liquidity remains the main offsetting factor for rate tightening, mainly from the East. China continues to inject cash to maintain ample liquidity in the banking system and boost economic growth post-covid-0,” from Paradigm’s Cryptocurrency Liquidity Network David Brickell, Director of Institutional Sales, in Issue 28 of the Macro Pulse Bulletin.
Hong Kong has recently taken an interest in cryptocurrencies, fueling speculation that China will eventually ease restrictions. The island nation’s Securities and Futures Commission (SFC) issued a statement last month announcing consultations on the proposed request from operators of virtual asset trading platforms.
Brickell notes:
“With Hong Kong seen as the mainland’s testing ground, the potential for massive retail asset inflows into cryptocurrencies will keep the positive sentiment on US-driven FUD.”
From a technical analysis standpoint, a convincing break above the February high of $25,000 would be needed to immediately reinforce the bullishness. The area around the said level limits the rebound in August 2022.
FxPro Senior Market Analyst Alex Kuptsikevich commented:
“The technical chart on the weekly time frame shows that only consolidation above $25,000 can reinforce the market’s bullish view.”
Next move depends on the Fed
Imran Lakha, founder of Options Insights, said the price direction of bitcoin and other cryptocurrencies is likely to depend on the U.S. Federal Reserve taking a more hawkish stance on interest rates as the agency fights inflation.
Earlier this month, bitcoin, the largest cryptocurrency by market value, hit its highest level since August 2022. But prices fell after the Commerce Department’s personal consumption expenditures (PCE) price index data on Friday showed a surprise surge of 5.4 percent in January, while economists forecast growth of 5 percent.
Bitcoin and other cryptocurrencies fell following the report.Additionally, according to the tool fed watch In terms of CME, affected by the PCE index data, there is more room for the Fed to raise interest rates by 50 basis points in March. Such predictions lead to volatility.
Volatility dropped sharply between November and December after a string of major cryptocurrency firms collapsed, including the FTX exchange, Lakha said.
According to him, risk demand will return to the market only when volatility decreases. Therefore, many people bet on bullish options (call options) compared to bearish bets (put options) in the options market. A call option is a financial contract that gives the buyer the option but not the obligation to buy, while a put option gives the buyer the right but not the obligation to sell.
“When we started to see the market come back to life and price swings of more than 10%, everything came back to the phone, especially Bitcoin,” Lakha said.
Next, he highlighted that interest in put options more or less “disappeared after the market bottomed out last year.”
BTC is currently trading above $23,700, but Lakha doesn’t rule out the possibility that it “could go back to $16,000” before heading towards $28,000 or even $30,000. Underlying volatility may be low enough to attract put buying again.
More broadly, the entire crypto options market depends on bitcoin staying above $20,000 to $21,000 to support projects in the industry. Retail investors who still own the token may be making long-term investments.
“They’re not really buying it from a tactical standpoint. They’re there, they’ve had a bad time. Maybe they’ll continue to stockpile.”
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Ming Ying
According to Kyptos
